Is Repair & Renovation on your Agenda?

Are you are looking forward to converting your single-storey house into a double-storeyed one for self use or for giving it out on rent? Or you have a two bedroom house and want to construct a few more rooms or you are looking for reconstructing or renovating an old house?

The solution is available. A visit to your bank may provide you the desired amount you are looking for. Most banks and housing finance companies give loans not only for renovation but also reconstruction of a house. All these can be financed categorised under housing loans.

In addition to loans to buy a new or existing house/flat and constructing a new house, loans are also available for renovation, alteration, and extension of existing house/flat. This way you need not shell out the entire sum out of your pocket to extend, repair, renovate or alter a house/flat.

For sanction of the loan, a quotation must first be obtained from a qualified civil contractor/engineer/architect. The same must then, be submitted to the bank or housing finance companies for approval. Only after the approval of the quotation by ‘technical department’ of the said bank or housing finance company, the loan will be disbursed.

Usually, the terms and conditions for these loans are same as those for general home loans like individuals over 21 years with a steady source of income are eligible for the loan. The loan amount varies between different banks.

While there is no upper limit to the amount of loan you can get, the actual loan amount is determined on the basis of repayment capacity taking into account income, age, repayment track record.

Usually, the margin requirement is in the range of 20 to 30 percent of the project cost implying that the bank finances up to 80 percent of the projected expenditure. The balance 20-30 percent is to be financed by the borrower from his own resources. Further, as a rule of thumb, the project cost should not exceed 45 to 50 percent of the value of the property.

One primary condition for availing this loan is that the property should be in the name of the borrower. As a security, the bank may insist on mortgage of the property to be repaired or renovated. In case an individual has an existing housing loan from a particular bank or housing finance company, then he will have to necessarily opt for a renovation loan from that bank or housing finance company.

This is because the original property papers will be with the bank or housing finance company which will not be in a position to transfer them to another bank or housing finance company while the home loan payment is on.

Usually, the same rate of interest is charged, as is charged on a general home loan, depending on the amount borrowed, tenure and mode of interest-fixed or floating- selected. However, the rate of interest on a renovation loan is lower than that for a personal loan.

Even personal loans have high interest rates vis–vis renovation loans. Therefore, it makes more sense applying for a renovation loan for your house than applying for a personal loan.

The loans are available for a flexible tenure that ranges from 1-15 years and the repayment is through ‘Equated Monthly Installments’ (EMI). Some banks also give a moratorium period of 6-18 months after the completion of repair or renovation work, whichever is earlier.

Processing charges applicable on the loan ranges from 0-2 percent of the loan amount. The prepayment penalty on the loan ranges from 1-2 per cent.

In addition to the usual documents, the borrower needs to submit these too:

  • Proof of ownership of house
  • Estimated expenditure
  • Break-up of estimated expenditure, certified by an architect or valuer
  • New approved building plan
  • Valuation certificate

However, one aspect that individuals need to be aware of is tax benefits on this loan are available only on the interest portion. This is unlike tax benefits for home loans, which are available on both, principal and the interest component. Therefore, you need to evaluate your options well before finalizing an alternative.